The USD/CAD pair has extended its uptrend for the ninth consecutive day, climbing to the 1.3785-1.3790 range during the Asian session on Monday, marking its highest level since August 7. This momentum is driven by a robust US Dollar (USD) and declining crude oil prices, which tend to weaken the commodity-linked Canadian Dollar (CAD).
The US Dollar Index (DXY), which measures the Greenback against a basket of currencies, is approaching a nearly two-month high reached last Thursday, fueled by growing expectations for a less aggressive policy easing by the Federal Reserve (Fed). Currently, markets are pricing in over a 90% chance that the US central bank will reduce borrowing costs by only 25 basis points (bps) in November. This environment keeps US Treasury bond yields elevated, bolstering the Greenback and providing additional support for the USD/CAD pair.
In contrast, crude oil prices opened the week with a bearish gap, reacting to softer Chinese inflation data released over the weekend, which indicated a sustained deflationary trend that negatively impacts fuel demand. Disappointment over China’s fiscal stimulus plans has overshadowed Friday’s positive Canadian jobs data, leading investors to scale back expectations for a significant rate cut by the Bank of Canada (BoC). This sentiment is weighing on the CAD and supporting the USD/CAD pair.
However, it remains uncertain whether bulls will capitalize on this upward movement or take profits ahead of the Canadian consumer inflation figures scheduled for release on Tuesday. Additionally, the risk of escalating geopolitical tensions in the Middle East and concerns about supply disruptions from this critical region are expected to limit further declines in crude oil prices. This dynamic could deter CAD bears from initiating new positions, thereby capping the USD/CAD pair amid thin liquidity due to a holiday in both the US and Canada.
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